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  5. Corporate Finance: New Valuation Factors
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Corporate Finance: New Valuation Factors

Paper Session

Saturday, Jan. 6, 2024 8:00 AM - 10:00 AM (CST)

Marriott Rivercenter, Grand Ballroom Salon B
Hosted By: American Finance Association
  • Chair: Wei Jiang, Emory University

Tracing Out International Data Flow: the Value of Data and Privacy

Junjun Quan
,
Columbia University

Abstract

I measure firms' value of data and consumers' privacy preferences by analyzing the supply and demand-side reactions to the EU’s General Data Protection Regulation (GDPR). While previous research has focused on consumer reactions to privacy regulations, my study also incorporates firm responses. After GDPR limits firms’ access to data, the EU sales share of US data-intensive firms declines by 8%. EU consumers, who can choose to share less data, suffer a 6% deterioration in user experience as measured by app ratings. I develop a general equilibrium model to map these empirical findings and estimate the value of data and privacy. Privacy-conscious consumers gain from privacy protection. However, the quantitative model reveals that the digital welfare of other consumers declines because firms also use data to enhance productivity and customize digital products. In aggregate, EU digital welfare declines by 4%.

How Financial Markets Create Superstars

Spyros Terovitis
,
University of Amsterdam
Vladimir Vladimirov
,
University of Amsterdam

Abstract

Price discovery in financial markets guides the efficient allocation of resources. Yet we argue that speculators uninformed about firms' fundamentals can profit from distorting the allocative function of prices by inflating stock prices. Such speculation can be profitable because high valuations attract employees, business partners, and investors who create value at targeted firms at the cost of diverting resources away from better firms. The resulting resource misallocation is worst in "normal" (neither hot nor cold) markets and when firms offer stakeholders performance compensation or equity. Investors, such as VCs, can also profit from inflating firm valuations in private markets.

Politicization of the Supreme Court and Firm Value: Evidence from Ruth Bader Ginsburg’s Death

Tor-erik Bakke
,
University of Illinois-Chicago
Hamed Mahmudi
,
University of Delaware
Aazam Virani
,
University of Arizona
Song Zhang
,
University of Delaware

Abstract

We exploit the sudden passing of justice Ruth Bader Ginsburg (RBG) – an event that signaled a more conservative Supreme Court of the US (SCOTUS) – to examine the impact of a change in the partisan composition of the SCOTUS on firm value. Consistent with a more conservative SCOTUS, we find that Republican-leaning firms exhibit more positive abnormal announcement returns around RBG's passing. This result is driven by industry-level political preferences. Republican-leaning firms located in Republican-controlled states exhibit more positive returns. Firms facing more political risk exhibit lower announcement returns, consistent with an increase in economic policy uncertainty following RBG’s passing.

Discussant(s)
Anastassia Fedyk
,
University of California-Berkeley
Doron Levit
,
University of Washington
Elisabeth Kempf
,
Harvard University
JEL Classifications
  • G3 - Corporate Finance and Governance